Posted by: Rob Hof on November 17, 2008

Yahoo co-founder and CEO Jerry Yang will step down as CEO as soon as a successor is found, the embattled Internet company just announced. The release (quoted in full after the jump, along with Yang’s memo to the troops) came shortly after the blog Boomtown broke the news.

The move may well prompt Microsoft, whose repeated attempts to buy all or a portion of Yahoo failed to produce a deal earlier this year, to come back with another offer. That’s what investors, who have bid up the stock about 4% in extended trading after the market close Nov. 17, may be hoping. “This clears the path for a likely Microsoft deal,” probably a bid for Yahoo’s Internet search operation, says Sandeep Aggarwal, an analyst with financial services firm Collins Stewart. “By not having Yang as CEO, Yahoo can free up its strategic alternatives.”

Yahoo, whose stock price has sunk to just $10.63 a share as of today, down from $19 a share in late January when Microsoft made an unsolicited bid for the company, said it has begun a search for a new CEO both inside and outside the company. One source tells me that current Yahoo President Sue Decker is the only internal candidate.

It seems likely that the board will be inclined to look seriously outside, however, since Decker has a close association with Yang and the Yahoo board. Investors continue to be angry that Yahoo didn’t manage either an acquisition by Microsoft, which had offered up to $33 a share for the company, or a deal for Microsoft to take over Yahoo’s search operation, which trails far behind Google.

So why now, after many months of calls by investors for Yang’s head? One source tells me it wasn’t a particular event. “Jerry and the board said it makes sense to get somebody else in here,” says this person. “It was time for a change.” Sources say discussions about Yang’s stepping down have been going on for several weeks.

However, the move comes less than two weeks after Google ended a proposed search advertising deal with Yahoo. The search giant, whose ads Yahoo would have run on some of its pages, withdrew after the Justice Department threatened to file an antitrust lawsuit to block the deal. That deal would have brought a much-needed boost in sales and profits, including up to $450 million in operating cash flow annually, by Yahoo’s reckoning.

Meanwhile, despite continual rumors that Yahoo was discussing a deal to buy Time Warner’s AOL unit, those talks have gone nowhere because the two companies are far apart on price. And despite Yang insisting last week that a Yahoo buyout would be in Microsoft’s best interest, Microsoft has continued to say it’s not interested.

That said, a new CEO may well bring Microsoft back to the table, some observers note. “It’s probably the beginning of the end for Yahoo,” says Eric Jackson, an activist investor who has since early 2007 pressured the company to make more changes. “Microsoft will probably come back with an offer.”

The news of Yang’s stepping down came as little surprise to some observers, who noted that investors clearly haven’t been impressed with his vision of Yahoo’s future. “The Google deal was probably the last straw,” says Ted West, CEO of search ad network LookSmart. “I don’t know how the board could have avoided it. The investment community has very little confidence in the company’s turnaround plan.”

Yang’s nearly 16-month tenure as CEO is seen by many observers as a failure, despite a number of product and organizational initiatives that were dwarfed by the drama of Microsoft’s six-month-long pursuit of Yahoo. He will return to his role as Chief Yahoo, a strategy-setting role which was his job for most of his time at the company. He will remain on the company’s board.

The executive search firm Heidrick & Struggles will conduct the search for a new CEO, along with Yahoo Chairman Roy Bostock. But it’s not clear who would be willing to come in to run Yahoo at this point, given the impatience of investors to turn the company’s fortunes around quickly. And although Yahoo’s board no doubt would like to find someone before the end of the year, the search itself could take into the new year, given holidays and the need for anyone from outside to provide enough notice to his or her current employer.

The new CEO will face huge challenges that make the prospect of a near-term improvement in Yahoo’s fortunes look slim. The worsening economy is already hitting online advertising, especially the display ads which are Yahoo’s chief source of revenues. What’s more, Yahoo already has announced a 10% layoff, which will come by mid-December. That layoff, the second this year, along with a steady stream of executive departures going back several years, has left the morale of remaining Yahoo employees low.

Some likely names include former AOL CEO Jonathan Miller, who is generally well-regarded for keeping the Time Warner unit from sinking entirely. He was proposed to join Yahoo’s board in August after activist investor Carl Icahn ditched his proxy fight against Yahoo in return for several board seats. But Miller decided not to after Time Warner reportedly threatened to invoke a non-compete agreement.

Kara Swisher at Boomtown mentions some other obvious candidates, such as former eBay CEO Meg Whitman, former Yahoo COO Dan Rosensweig, and News Corp. COO Peter Chernin. She also raises the possibility of former Microsoft executive Kevin Johnson, who recently joined Juniper Networks as CEO. Other names being floated are Google executives Tim Armstrong and Jonathan Rosenberg, former Efficient Frontier CEO (and former Yahoo exec) Ellen Siminoff and two new Yahoo board members who joined with Icahn, former Nextel CEO John Chapple and former Viacom CEO Frank Biondi.

One source indicated Decker remains a viable candidate. “I wouldn’t dismiss her,” says this person. She’s still well-liked by Wall Street for her ability to make effective presentations on the company. And she knows her way around a board room. Not least, she wasn’t deeply involved with the Microsoft debacle, so she may be seen as less likely to stand in the way of a deal with Microsoft, should one return.

But she also has been Yang’s chief lieutenant throughout a period in which Yahoo has been unable to inspire confidence among investors or many employees, who remain divided about her leadership. If she were chosen, investors no doubt would assume there will be little change in Yahoo’s direction—especially with Yang still on the board.

Whoever comes in, this seems certain to be a relief for Yang, whose reputation as a technology visionary was tarnished even among his many loyal followers inside the company. His firm stand against Microsoft’s hostile moves, and even more the fact that he ultimately beat it back, surprised many who saw him as a nice guy but not a fighter.

However, many people inside and outside the company, even some who preferred that Yahoo remain independent, believe he mishandled the Microsoft overtures. Yang claimed that when Microsoft pulled its offer, he had been expecting the software giant to continue negotiating. Instead, Microsoft CEO Steve Ballmer said he saw no way Yahoo was going to sell, at least with Yang and the current board in charge.

Now, with Yahoo’s stock at scarcely a third of the last price Microsoft offered just last May, Yang may well be remembered for what he didn’t do rather than for what he did.

Here's Yang's memo:

yahoos -

i wanted to address all of you on the news we've just announced. the board of directors and I have agreed to initiate a succession process for the ceo role of yahoo!. roy bostock, our chairman of the board, is leading the effort to identify and assess potential candidates for consideration by the full board. the board will be evaluating and considering both internal and external candidates and has retained heidrick and struggles to help in this effort.

i will be participating in the search for my successor, and i will continue as ceo until the board selects a new ceo. once a successor is named, i will return to my previous role as chief yahoo and continue to serve as a director on the board.

last june, i accepted the board's request that i assume the ceo role to restructure and reposition the company as a whole in order to more effectively meet the fast-changing needs of both users and partners. since taking on the ceo role, i have had an ongoing dialogue with the board about succession timing. thanks in large measure to your tireless efforts, we have created a more open, competitive yahoo! and we believe the time is now right to transition to a new ceo who can take the company to the next level.

despite the external environment we face, the fact remains that yahoo! is now a significantly different company that is stronger in many ways than it was just 18 months ago. this only makes it all the more essential that we manage this opportunity to leverage the progress up to this point as effectively as possible. i strongly believe that having transformed our platform and better aligned costs and revenues, we have a unique window for the right ceo to take ownership over the next wave of mission-critical decisions facing the company.

all of you know that I have always, and will always bleed purple. i will always do what I think is right for this great company. while this step will be an adjustment for all of us, i know itʼs the right one. i look forward to updating you on this process as soon as the board has developments to share, and will continue to do everything i can to make yahoo! fulfill its full potential.

thank you,

jerry

Sent from my handheld somewhere

And here's the release:

Yahoo! Conducting Search for New CEO

Co-Founder Jerry Yang to Step Down Following Appointment of New CEO
and Return to Former Role as Chief Yahoo! and Board Member

SUNNYVALE, Calif., Nov 17, 2008 (BUSINESS WIRE) --

Yahoo! Inc. (Nasdaq:YHOO) today announced that its Board of Directors has initiated a search for a new Chief Executive Officer. Jerry Yang, co-Founder of Yahoo!, has decided to return to his former role as Chief Yahoo! upon the appointment of his successor as CEO, and he will also continue to serve on the Board. Yang, 40, assumed the CEO role at the Board's request in June 2007, and he has led Yahoo! through a strategic repositioning and transformation of its platform.

Chairman Roy Bostock, working with the independent directors and in consultation with Jerry Yang, is leading the process of assessing potential candidates and determining finalists for consideration. The search will encompass both internal and external candidates, and the Board has retained Heidrick & Struggles, a leading international executive search firm, to assist in the process.

"Over the past year and a half, despite extraordinary challenges and distractions, Jerry Yang has led the repositioning of Yahoo! on an open platform model as well as the improved alignment of costs and revenues," said Roy Bostock. "Jerry and the Board have had an ongoing dialogue about succession timing, and we all agree that now is the right time to make the transition to a new CEO who can take the company to the next level. We are deeply grateful to Jerry for his many contributions as CEO over the past 18 months, and we are pleased that he plans to stay actively involved at Yahoo! as a key executive and member of the Board."

"From founding this company to guiding its growth into a trusted global brand that is indispensible to millions of people, I have always sought to do what is best for our franchise," said Jerry Yang. "When the Board asked me to become CEO and lead the transformation of the Company, I did so because it was important to re-envision the business for a different era to drive more effective growth. Having set Yahoo! on a new, more open path, the time is right for me to transition the CEO role and our global talent to a new leader. I will continue to focus on global strategy and to do everything I can to help Yahoo! realize its full potential and enhance its leading culture of technology and product excellence and innovation."

Reader Comments

HTim

November 17, 2008 9:20 PM

It's high time this happened. Yang may not be responsible for 100% of the blame but he single handedly forced his crew to steer their titanic into the iceberg. And what a titanic - a cross between an aircraft carrier, a cruise vessel, cargo ship and submarine - no one is clear what the company is all about today.

Ron

November 17, 2008 9:51 PM

I hope Apple buys Yahoo to salvage Zimbra, and use the very talented engineers at yahoo to beef up MobileMe and possibly safari or any web development SDK's that they might need.

Sophia

November 17, 2008 9:57 PM

Way to go Jerry, YOU PINHEAD! Stock is now worth 1/3 what it was worth with MS deal. Mybe you can get a job running GM or FORD I hear they need some new management.

HEY I HAVE AN IDEA! Turn Yahoo into a bank so it can get money from the TARP. There may be a way to salvage this after all......

Don Paschal

November 17, 2008 10:03 PM

R.I.P. Yahoo.

Timothy Leary

November 17, 2008 10:16 PM

I'm dissappointed that Yang didn't get Wang Xiaoning and Shi Tao out of prison before he left his post. I think Yahoo needs to conduct a clandestine operation deep behind the Great Wall and free these two people that Yahoo ratted on went it's news became a communist propaganda outlet. Now nobody wants to touch it, it crossed the line according to our elected officials in the Senate. And nobody wants to read it unless there is some link to Jennifer Aniston. The American public prefers a free press, sorry Yahoo.

Omidal

November 17, 2008 10:37 PM

I'm sure Steve Ballmer from Microsoft will eventually buy Yahoo! for a lot less. With the economic downturn and further devaluation of yahoo's share prices it will be a bargain for Microsoft. I can predict by next year around June Microsoft might make another offer for Yahoo.

Rob

November 17, 2008 11:00 PM

Yeah!!!!! It's about time he left! Perhaps now my stocks will see some appreciation rather than depreciation!

Deepak

November 17, 2008 11:58 PM

Well now the doors are open for MS.
Steve , Go grab it ....

Nodir Ruzmatov

November 18, 2008 12:22 AM

Founder does not mean good CEO!
Steve from Microsoft eventually will buy Yahoo for lot less!

adam hartung

November 18, 2008 12:43 AM

Yahoo! needs a new leader that will Disrupt and use White Space to chart a new course. Someone who will compete with Google and improve the web for all of us. Certainly not Microsoft - a new leader wtih the moxie to compete. Read more at http://www.thephoenixprinciple.com

J. Lin

November 18, 2008 12:59 AM

Probably thanks to Icahn.

Griffs Ghost

November 18, 2008 1:19 AM

Hire Donahoe.

Yahoo has already opened their doors to the Bain pod people.

Doonahoe and Yahoo are a perfect match.

Whitman may find shelter here too.

Tony.C

November 18, 2008 2:55 AM

How can Jerry and the whole company have been so blind? AMP just won't work.And that is the reason, not ruining the deal with MS.

Asian

November 18, 2008 3:51 AM

Look how americans look down upon the co-founder of a Company that has helped revolutionise internet. May be because he is asian or simply because of money.

The same way they despise their own president George Bush,that they voted overwhemingly four years ago...... Shame and no dignity

jaagare

November 18, 2008 5:42 AM

Yes, in the long run it is a good step for yahoo...Yang in the last few months looked like he was trying to impose his decisions on team yahoo, and now I think with a new management in place, things should improve at Yahoo..

Also Asian

November 18, 2008 6:42 AM

Maybe because he is an idiot who ran the company into the ground and just happened to be Asian.

Why does everything have to be about race with some people?

Shrestha

November 18, 2008 7:31 AM

Jerry should have been gone long time ago. He didn't act in best interest of shareholders. He will be well remember for turning the company downward.

Rina

November 18, 2008 9:12 AM

It's a pity Yang failed to satisfy the shareholders. He tried his best to bring Yahoo to a higher level. In my opinion present economic crisis offsets his hardworking.

A.T.Mann

November 18, 2008 12:02 PM

Bad how few people can conceive the dangers of corporate power, and its increase through fusions or mergers as the above seen alike.
Because most are shortsightedly seeking quick profit, they neglect the benefits of a differentiated organisation as Yahoo could be if capable to keep their individuality. Shares tend to oscillate, just have patience to support a man like Yang who did not go conform with the white sharks. As someone said before: R.I.P. Yahoo.
Yang your stubborn savior goes from board. The victims reject him. Let them die.

Tony S

November 18, 2008 4:15 PM

Yang blew it, Yahoo would be lucky to get $25.00 for the entire company!

david

November 18, 2008 6:29 PM

MS might come back and inquire about a buyout, but Yahoo will be lucky to get $20-$22 per share.....Very lucky

WebVeteran

November 19, 2008 12:26 PM

Remember Jerry is the one who started Yahoo and has what it is today. I remember back in 1995 when Yahoo was a startup company. I think he tried to convince Microsoft that Yahoo is still a profitable company and wanted them to at least bring it up stock share price. So yes I still have my stocks share about 4000 back than when I got it but will wait and see what happens it I will sell later.

Mar

November 21, 2008 5:50 AM

Jerry will still spearhead, but with less cutting edge in decision making now that he isn't CEO. At least, he won't have to worry about having investors pecking up his back anymore and focus putting some springs back onto the company's developments and on gaining yahoo's competitive egde back.

It'd be a sad day for Yahoo and Technology if MS acquired Yahoo. As if another level of bureaucracy will help anything.

Jon Alimjanov

November 21, 2008 3:56 PM

As they say in Russian: pull the trigger while it's hot otherwise it will be too late.

Should've sold it to MS!

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Bloomberg Businessweek writers Peter Burrows, Cliff Edwards, Olga Kharif, Aaron Ricadela, and Douglas MacMillan, dig behind the headlines to analyze what’s really happening throughout the world of technology. Tech Beat covers everything from tech bellwethers like Apple, Google, and Intel and emerging new leaders such as Facebook to new technologies, trends, and controversies.